RBA Holds Rates As Pressure Mounts For Structural Reform

By Amanda Wright

The Reserve Bank of Australia has left the official cash rate unchanged at 3.85 per cent, sparking frustration from both the housing and small business sectors, who argue the decision ignores clear signs of economic weakness and growing structural pressure.

The move comes despite softer inflation data, sluggish consumer spending, and growing expectations of a rate cut. For many, it’s not just a delay — it’s a letdown.

“This decision will leave new home building activity more constrained than necessary, for longer,” said Housing Industry Association Senior Economist Tom Devitt.

“But the previous two cuts to the cash rate have seen an improvement in market confidence that is likely to continue.”

Mr Devitt said the RBA had missed an opportunity to send a stronger signal of confidence to the market.

“Recent inflation data shows that the RBA’s preferred trimmed mean measure has been within their 2–3 per cent target band for over a year now, and continues to decline,” he said.

“Household spending has also been constrained, with Australia having been in an almost uninterrupted per capita recession since mid-2022.”

According to Mr Devitt, home building — a key pillar of the economy — remains shackled by high interest rates.

“By most of the RBA’s own estimates, the cash rate remains in restrictive territory, meaning it is still constraining household and business spending across the economy, including in the home building industry.”

And the longer-term housing outlook is grim.

“More rate cuts cannot deliver the volume of home building required to match the growth in demand or achieve the 1.2 million new homes goal,” he warned.

“As it stands, Australia is set to build less than 1 million new homes over the government’s target five-year period, 20 per cent short of national housing targets and a long way from addressing the national housing crisis.”

The business community has also expressed concern over the implications of the rate hold. CPA Australia Business Investment Lead Gavan Ord said businesses were hoping for relief and clarity — and got neither.

“Today’s decision... will be disappointing news for borrowers and business,” Mr Ord said.

“Businesses sentiment is beginning to shift and further rate cuts this year would be very welcome, but most small businesses remain bound by uncertainty and are still taking a cautious approach.”

Mr Ord said Australia’s 2.5 million small businesses were waiting for more than interest rate cuts — they want systemic change.

“The biggest boost for small businesses right now would be substantive, long-term commitments from government to revitalise the business environment by removing unnecessary regulatory burdens and fostering entrepreneurship. This must be a key deliverable from the Economic Reform Roundtable in August.”

While Treasurer Jim Chalmers has signalled a reform focus, Mr Ord said it’s time to move from promises to action.

“Rate cuts alone will not be enough to boost lagging business confidence,” he said.

“The business community is looking to government to back-up its positive messaging with genuine reforms that help move the needle.”

“For years, many small businesses have been in survival mode, navigating tough economic waters and a challenging operating environment,” Mr Ord added.

“Though the downward pressure on interest rates and supportive messaging from Treasurer Jim Chalmers are encouraging, small businesses need to see real and measurable reforms before they’re ready to take off their lifejackets.”

With the RBA holding its fire and borrowers still facing high repayments, all eyes now turn to August — when both the Reserve Bank and the Federal Government are expected to show whether they have the stomach for bold economic change.

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